Cooper v. Alsco, Inc. ( 2016 )

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IN THE SUPREME COURT OF THE STATE OF WASHINGTON
DAVID COOPER and JERRY SCOTT, )
individually and on behalf of all those ) No. 91801-5
similarly situated, )
)
Respondents, )
)
v. ) EnBanc
)
ALSCO, INC., a foreign corporation, )
)
Appellant. )
_______________________) Filed AUG 0 11 2016
JOHNSON, J.-This case requires us to determine if Alsco Inc. is a "retail
or service establishment" (RSE) under chapter 49.46 RCW for purposes of an
exemption to the overtime pay requirement. See RCW 49.46.010(6). The trial court
granted the employees' motion for summary judgment regarding entitlement to
overtime pay, finding that Alsco is not an RSE for purposes of the overtime pay
exception. In granting the employees' subsequent motion for summary judgment
on the issue of calculating the amount of overtime due, the court calculated the
"regular rate of pay" by dividing the total weekly compensation actually paid by 40
hours, not by hours actually worked. We accepted direct review. We reverse the
Cooper v. Alsea, Inc., No. 91801-5
trial court and hold that Alsco is an RSE for purposes of the overtime pay
requirement.
FACTS AND PROCEDURAL HISTORY
Alsco is a textile rental and sales company that supplies uniforms, linens,
and other products to other businesses in industrial, hospitality, health care, and
other fields. Alsco does not provide products or services for resale. Alsco and its
employees are covered by a collective bargaining agreement (CBA). 1
Alsco provides three services to its customers: (1) the rental and servicing of
linens and uniforms, (2) the rental and servicing, including repair, replacement, and
refilling, of washroom and hygiene products, and (3) the direct sale of janitorial
products, garments, and linens. Its employees deliver clean goods, such as
uniforms and towels, to other businesses and pick up soiled goods, which Alsco
takes back to its facilities for washing. Alsco sells some goods to businesses, such
as mops and paper towels. Both parties agree that Alsco does not provide any
goods for resale by their customers.
Alsco employees who deliver and pick up the goods can choose to be paid
either by the hour or by commission with a base salary. For those who choose to be
1 No dispute exists that the employees received what the CBA provided. A CBA cannot
evade Minimum Wage Act, chapter 49.46 RCW, requirements if it applies. See Hisle v. Todd
Pac. Shipyards Corp., 151 Wash. 2d 853, 93 P.3d 108 (2004).
2
Cooperv. Alsea, Inc., No. 91801-5
paid on commission, the commission portion comprises over half of their total pay.
Alsco does not pay commissioned employees any greater compensation for hours
they work over 40 in a week.
A class of commissioned delivery employees filed suit against Alsco,
claiming entitlement to overtime pay under the Minimum Wage Act (MWA),
chapter 49.46 RCW, and alleging Alsco willfully withheld wages in violation of
the MWA. Alsco and the employees filed cross motions for summary judgment.
Alsco argued that it is exempt from paying commissioned workers overtime
because it is an RSE for purposes of the overtime exemption in RCW
49.46.130(3). Alsco also claimed it had not willfully withheld wages because the
commission-based wage system was negotiated as part of the CBA.
The trial court granted the employees' motion regarding entitlement to
overtime, finding that Alsco is not an RSE for purposes of the overtime exemption.
In the same order, the trial court granted Alsco's motion that the alleged wrongful
withholding of overtime was not willfuF and also denied, without prejudice, the
employees' motion as to the method for calculating unpaid overtime, leaving that
issue for later.
2
The issue of willful withholding of wages has not been pursued here.
3
Cooper v. Alsea, Inc., No. 91801-5
Next, the trial court certified the questions regarding the applicability ofthe
retail or service exemption and willful withholding of wages to the Court of
Appeals, which declined to grant discretionary review. The Court of Appeals
explained that the trial court could resolve the remaining issues relatively quickly
and that immediate review would not materially advance the ultimate resolution of
the litigation. The parties, back in trial court, filed cross motions on the remaining
issue of how to calculate the amount of overtime owed to the employees by Alsco.
The court granted the employees' motion and denied Alsco's. The court calculated
the "regular rate of pay" for overtime purposes by dividing the total weekly
compensation actually paid by 40 hours rather than all hours actually worked.
Alsco appealed directly to this court, arguing that there are conflicting
decisions among the Court of Appeals and a conflict with this court's decisions,
and that this case involved a fundamental issue of broad public importance
requiring prompt and ultimate determination. RAP 4.2(a)(4). We accepted direct
revrew.
ANALYSIS
The issue is one of statutory interpretation. We review statutory
interpretation questions de novo. State v. Azpitarte, 140 Wash. 2d 138, 140-41, 995
P.2d 31 (2000). Unambiguous statutes are not subject to judicial interpretation; we
must determining the meaning of the statute based on the statutory language.
4
Cooper v. Alsea, Inc., No. 91801-5
Harmon v. Dep't of Soc. & Health Servs., 134 Wash. 2d 523, 530, 951 P.2d 770
(1998).
Alsco contends that its commission-based-pay employees are exempt
employees under the "retail or service" exemption under the MWA. RCW
49.46.010(6). Washington's MWA generally requires employers to pay employees
one and one-half times their regular rate of pay for any hours worked over 40 hours
in a week. RCW 49.46.130(1). 3 However, at issue here, the MWA expressly
exempts employees who work for an RSE if their regular rate of pay exceeds one
and one-halftimes the minimum wage and more than half of the employee's
compensation represents commissions on goods or services. 4
The RSE exemption to the MWA states:
No employer shall be deemed to have violated subsection (1) ofthis
section by employing any employee of a retail or service
establishment for a workweek in excess of the applicable workweek
specified in subsection (1) of this section if:
(a) The regular rate of pay of the employee is in excess of one
and one-halftimes the minimum hourly rate required under RCW
49.46.020; and
3
"Except as otherwise provided in this section, no employer shall employ any of his or
her employees for a workweek longer than forty hours unless such employee receives
compensation for his or her employment in excess of the hours above specified at a rate not less
than one and one-halftimes the regular rate at which he or she is employed."
4
The statute does not differentiate between sales of services or goods. We similarly make
no effort to distinguish Alsco' s transactions that are sales of goods from those which are sales of
servwes.
5
Cooper v. Alsea, Inc., No. 91801-5
(b) More than half ofthe employee's compensation for a
representative period, of not less than one month, represents
commissions on goods or services.
RCW 49.46.130(3) (emphasis added). It is uncontested that the commission-
based-pay employees here are paid over one and a halftimes the minimum wage
and that commissions make up over half of their pay. The issue then is whether
Alsco is an RSE under the statute.
RCW 49.46.010(6) defines an RSE as "an establishment seventy-five
percent of whose annual dollar volume of sales or goods or services, is not for
resale and is recognized as retail sales or services in the particular industry." It is
undisputed that the products sold by Alsco to other businesses are used by the
businesses and are not resold to individuals. The dispositive question is whether it
is "recognized as retail sales or services in the particular industry."
The trial court reasoned that Alsea's sales are not recognized as retail sales
or services in the particular industry because they are to other businesses pursuant
to long term contracts and because Alsco lacks a retail concept. The trial court
explained that Alsea's customers may be "the end of the line" in the sense that the
customer's employees wear the uniforms, but they do so only as a means to assist
their own employers in their efforts to make a profit by selling their own goods or
services to the general public. In essence, the trial court seemingly determined
6
Cooperv. Alsea, Inc., No. 91801-5
Alsco is not an RSE because it contracts with other businesses on a long term
basis. That reasoning misreads the statute.
While there is little guiding Washington precedent on whether a business
meets the definition of an RSE, we considered whether a vending machine
business was an RSE in Stahl v. Delicor ofPuget Sound, Inc., 148 Wash. 2d 876, 64
P.3d 10 (2003). Alsco primarily asserts the trial court's determination that Alsco is
not an RSE conflicts with our decision in Stahl. In that case, we addressed whether
sales of goods and services are recognized as retail in the particular industry. In
Stahl, 95 percent of the employer's revenue came from direct sales to consumers,
but the question remained whether sales from vending machines were "recognized
in the industry" as retail sales. Stahl, 148 Wash. 2d at 882. We held that vending
machine sales are recognized as retail sales by the industry, observing that vending
machine sales are subject to the retail sales tax and are "end of the line"
transactions between the vending company and the ultimate consumer. Stahl, 148
Wash. 2d at 882.
The factors discussed in Stahl are helpful in the situation present here. First,
Alsco's sales are taxed under Washington's retail sales tax under RCW
82.08.0202, which provides:
[P]roviding customers with a supply of clean linen, towels, uniforms,
gowns, protective apparel, clean room apparel, mats, rugs, and similar
items, whether ownership of the item is in the person operating the
7
Cooper v. Alsea, Inc., No. 91801-5
linen and uniform supply service or in the customer [is a retail sale
and subject to retail sales tax].
This tax treatment factors heavily in deciding the applicability ofthe RSE
exemption. It makes sense that if the business transactions are taxed as being retail,
then the business is, in fact, engaged in retail sales under the exemption. Second,
Alsco's sales are "end of the line" sales. None of Alsco's goods or services are
resold. This also weighs heavily in the RSE determination. These factors are those
on which Stahl focused.
The distinction between the present case and Stahl is that here, Alsco's
customers are other businesses, which the trial court focused on in its conclusion
that Alsco was not an RSE because its business customers used Alsco's products
and services "as a means to assist their own ... efforts to make a profit by selling
their own goods or services to the general public." Clerk's Papers at 803. But such .
a distinction is not found in RCW 82.08.0202. Many businesses sell products to
other businesses at retail. That Alsco's sales are predominately high volume does
not control whether those sales are retail. A business can sell services at large
volume and still be considered retail. High volume sales do not negate the
definition of"retail."
While Alsco's "products" do not fit into the category of what one intuitively
considers retail, the statutory language controls. Alsco provides its customers three
8
Cooper v. Alsea, Inc., No. 91801-5
services: (1) the rental and servicing oflinens and uniforms, (2) the rental and
servicing of washroom and hygiene products, and (3) the direct sale of janitorial
products, garments, and linens. These "products" are providing goods and services.
The statute applies to both goods and services. The statutory definition of"retail"
undercuts the intuitive sense of what is retail. But we are analyzing those statutory
definitions. Retail businesses are not limited to establishments where consumers
enter, take goods off shelves, and purchase at a register. Retail businesses are also
entities that sell "goods and services." The service here that Alsco provides
includes supplying uniforms, towels, and linens that the customer purchases or
rents from Alsco. The core of Alsea's business is selling a "service" in the
statutory sense, specifically the rental oflinens and garments. The laundering of
the product by Alsco could be performed by another company or the customer
themselves. Here, the essence of the transaction subject to the sales tax is the
providing of the clean linens and unifonus. RCW 82.08.0202 includes "providing
customers with a supply of clean linens, towels, uniforms, ... and similar items,
whether ownership of the item is in the person operating the linen and uniform
supply service or in the customer" as a retail sale and subject to retail sales tax.
Simplifying the transaction in analyzing RCW 82.08.0202 is somewhat
helpful. Where a business rents uniforms to a customer for an event, RCW
82.08.0202 provides that this is a retail transaction. Where the customer is another
9
Cooper v. Alsea, Inc., No. 91801-5
business, the transaction retains its retail treatment. The statute draws no
distinction between individual versus business customers. The laundering and
return of uniforms to the customer, under RCW 82.08.0202, is similarly designated
a retail transaction. The statutory characterization is not affected or limited based
on the duration of the relationship, the volume of business, or the fact that
businesses are involved. Under RCW 82.08.0202, no language exists supporting
the trial court's conclusion.
Alsco identifies a similar federal case that interprets the Fair Labor
Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201-219, as exempting business-to-
business sales of goods or services as retail sales as long as the receiving business
is the ultimate user. 5 In Alvarado v. Corporate Cleaning Services, Inc., 782 F.3d
365 (7th Cir. 2015), where employees of a window washing business sued their
employer, seeking overtime pay allegedly due to them under the FLSA, the court
held that the business met the RSE requirement because it sold its window cleaning
services to the ultimate customers, even though most of their customers were other
businesses, namely building owners and managers. Particularly instructive here,
the court in Alvarado rejected the argument that the window washing companies'
5 Because the MWA is patterned on the FLSA, we will often turn to federal authority
interpreting the FLSA for guidance. See Hisle, 151 Wash. 2d at 862 n.6 (recognizing that the FLSA
is persuasive authority because the MWA is based on the FLSA).
10
Cooper v. Alsea, Inc., No. 91801-5
services were not retail because other business used the services to make a profit,
explaining:
It would be absurd to suggest that a dealer in motor vehicles, when it
sells a truck to a moving company, is "wholesaling" the truck because
the buyer will doubtless try to recover the cost of the purchase in the
price he charges for his moving services, which utilize the truck.
Alvarado, 782 F.3d at 369. This case and the factors analyzed in Stahl support the
determination that Alsco is an RSE.
The employees argue that Alsco is not an RSE because most of its business
involves long term contracts and high-volume sales. They cite federal regulations
implementing the FLSA that provide an RSE is one that typically "sells goods or
services to the general public ... in small quantities" and that generally "will not
be considered a retail or service establishment ... if it is not ordinarily available to
the general consuming public." 29 C.P.R. §§ 779.318(a), § 779.319. However,
those same regulations also provide that the retail exemption is intended to "extend
in some measure beyond consumer goods and services to embrace certain products
almost never purchased for family or noncommercial use." 29 C.P.R. § 779.318(b).
Further, federal courts have recognized that "'[d]espite this reference to supplying
goods and services to the general public, ... the provision of goods and services to
commercial customers does not necessarily prevent an establishment from
qualifying as a retail or service establishment."' Charlot v. Ecolab, Inc., 136 F.
11
Cooper v. Alsea, Inc., No. 91801-5
Supp. 3d 433 (E.D.N.Y. 2015) (first alteration in original) (quoting Kelly v. AI
Tech., No. 09 Civ. 962(LAK)(MHD), 2010 WL 1541585, at* 12 (S.D.N.Y. Apr.
12, 2010) (court order) (holding that the supplier of cleaning and related equipment
to restaurants, hotels, and other businesses may be an RSE for purposes of
commission-based-pay employee exemption under FLSA)).
Importantly, the federal regulations cited by the employees do not directly
control interpretation of our state's MWA, and we find no language in the
definition of an RSE under our act restricting the definition to businesses that sell
to individuals. Like the MWA, the FLSA requires overtime pay of one and one-
halftimes the regular rate for every hour worked beyond 40. 29 U.S.C. § 207(a)(l).
Alsco correctly points out that the FLSA does not require that a business sell to
individuals to qualify as an RSE. And, Congress amended the FLSA in 1949 to
specifically allow business-to-business sales to qualify as retail sales.
After the 1949 amendments, the definition of "retail sales" was broadened to
include sales to customers who are businesses in addition to individuals. Ch. 736, §
3, 63 Stat. 911; see Schultz v. Crotty Bros. Texas, 310 F. Supp. 761,766 (B.D. Tex.
1970) ("There can be no question that [the 1949] amendments have broadened the
scope of the§ 13(a) (2) exemption."). Congress replaced the previous "consumer
use" test when it amended the FLSA in 1949 to allow employers who sell goods
12
Cooper v. Alsea, Inc., No. 91801-5
and services to other businesses to qualify for the retail sales exemption. Ch. 736, §
3, 63 Stat. 911.
Since then, federal courts have held that the retail sales or service
establishment exemption under the FLSA applies to employers engaged in
business-to-business sales even where the business engages in those types of sales
exclusively. In Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 86 S. Ct. 737
15 L. Ed. 2d 694 (1966), the Court held that a tire merchant was not an RSE on the
basis that it sold tires at discount prices to businesses for use on their vehicle fleets.
The employees draw a comparison between Alsea's large volume contracts and the
equipment sold in Idaho Sheet Metal. However, the decision in Idaho Sheet Metal
was guided not by the volume of sales in question, but by the secretary of labor's
rule specifying that sales to fleets of five or more vehicles at wholesale prices are
not retail sales. Idaho Sheet Metal, 383 U.S. at 208. The Idaho Sheet Metal opinion
noted that the secretary's rule was intended to further specific legislative intent to
exclude certain types of sales made at deep discounts and in quantity. See Idaho
Sheet Metal, 383 U.S. at 192-93. In this state, no similar rule excluding businesses
that sell in quantity from the RSE definition under the MWA exists. Idaho Sheet
Metal is not that helpful because that case involved a former version of the FLSA,
under which all retail employees were exempt from overtime pay requirements, not
just those paid on commission.
13
Cooper v. Alsea, Inc., No. 91801-5
Additional federal cases support Alsco's position. English v. Ecolab, Inc.,
No. 06 Civ. 5672,2008 WL 878456 (S.D.N.Y. Mar. 31, 2008) (court order), held
that sales to other businesses pursuant to long term contracts-in that case, pest
extermination services-were retail sales. The employees attempt to distinguish
this case by pointing to the facts that the exterminators were free to set their own
schedules, which would allow them to "game" the overtime system, and that they
were skilled workers, so the company could not hire more workers to avoid
overtime. However, whether the employees do or do not control their schedules is
not helpful in deciding whether the exemption applies. As we discussed in Stahl,
an employee's job duties do not affect whether he or she is paid a bona fide
commission for purposes of the retail service exemption. An employee who has no
involvement in sales is exempt from overtime as long as the employee's
commission is tied to the amount charged to the customer and the remaining
requirements of the exemption are met. Stahl, 148 Wash. 2d at 886-87.
The employees point out that the businesses in English that purchase the pest
extermination services primarily benefit from those services, as opposed to the
individuals who patronage the ostensibly pest-free businesses. But the employees
cite no authority that the RSE determination turns on who receives the benefit. As
Alsco points out, such a definition would mean that a business-to-business sale
14
Cooperv. Alsea, Inc., No. 91801-5
could never be retail, which, as explained above, is contrary to both federal and
Washington law.
In an attempt to further distinguish the present case from English, the
employees cite to another federal case. Cancilla v. Ecolab, Inc., No. C 12-03001
CRB, 2013 WL 1365939 (N.D. Cal. Apr. 3, 2013) (court order) (denying Ecolab's
summary judgment motion asserting the RSE; Ecolab eventually settled following
certification of an FLSA collective action). The facts in Cancilla are
distinguishable from the present case. Unlike the service technicians involved in
that case, who had no way to increase their compensation, the employees here can
and do sell more products to increase their commission-based pay.
Lastly, the employees rely on four federal cases in support of their argument
that Alsco's sales should not be recognized as retail because Alsco limits its
operation to long term volume rental to commercial customers. Resp'ts/Pls.' Resp.
to Appellant Alsco Inc.'s Opening Br. at 13; see Idaho Sheet Metal, 383 U.S. at
206; Martino v. Mich. Window Cleaning Co., 327 U.S. 173, 66 S. Ct. 379,90 L.
Ed. 603 (1946); Schultz v. Instant Handling, Inc., 418 F.2d 1019 (5th Cir. 1969);
Acme Car & Truck Rentals, Inc. v. Hooper, 331 F.2d 442, 447-48 (5th Cir. 1964).
All four of these cases rely on a definition of an RSE under a section of the FLSA
that was repealed in 1989. Pub. L. No. 101-157, 103 Stat. 939. Under the previous
section 213(a)(2) of the FLSA, RSE was defined to include those employers who
15
Cooperv. Alsea, Inc., No. 91801-5
operated only on a small scale in the local community, so-called "mom and pop"
businesses. Section 213(a)(2) did not require that employees be paid on a
commission basis because that section was not concerned with the exempt status of
employees paid on a commission, unlike the exemption at issue here. Significantly,
Congress repealed section 213(a)(2) in 1989. Pub. L. No. 101-157, 103 Stat. 939.
Federal courts in those previous cases necessarily found that the businesses were
not RSEs because the definition of an RSE was much narrower. Since this
provision was repealed, these cases are not helpful. High volume sales no longer
control; a business now can sell a larger or smaller quantity of goods and services,
which does not negate the definition of"retail."
Under the statute, the exemption extends to businesses where its customers
are other businesses, as long as its sales are not for resale and are recognized in the
industry as retail-in other words, as long its sales are subject to the retail sales
tax, its sales are "end of the line" transactions, and the goods and services being
sold are not for resale. 6 Alsco meets these requirements. We reverse and remand
6
The statute is limited by its own terms; the RSE exemption applies only if the employer
is an RSE and the employees' regular rate of pay exceeds one and one-half times the minimum
wage, and more than half of the employees' compensation represents commissions on goods or
services. Any concern about an ostensibly broad definition of an RSE is tempered by the other
wage-based statutory requirements to the exemption.
16
Cooperv. Alsea, Inc., No. 91801-5
for entry of judgment for Alsco. 7
WE CONCUR:
7 Because we hold that Alsea is an RSE and therefore its employees are not entitled to
overtime pay, we need not address whether the trial court erred in detem1ining the formula for
calculating the overtime rate.
17